Correlation Between NCC AB and JM AB
Can any of the company-specific risk be diversified away by investing in both NCC AB and JM AB at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NCC AB and JM AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NCC AB and JM AB, you can compare the effects of market volatilities on NCC AB and JM AB and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NCC AB with a short position of JM AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of NCC AB and JM AB.
Diversification Opportunities for NCC AB and JM AB
Weak diversification
The 3 months correlation between NCC and JM AB is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NCC AB and JM AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM AB and NCC AB is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NCC AB are associated (or correlated) with JM AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM AB has no effect on the direction of NCC AB i.e., NCC AB and JM AB go up and down completely randomly.
Pair Corralation between NCC AB and JM AB
Assuming the 90 days trading horizon NCC AB is expected to generate 1.32 times less return on investment than JM AB. But when comparing it to its historical volatility, NCC AB is 1.36 times less risky than JM AB. It trades about 0.05 of its potential returns per unit of risk. JM AB is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 17,560 in JM AB on August 25, 2024 and sell it today you would earn a total of 280.00 from holding JM AB or generate 1.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NCC AB vs. JM AB
Performance |
| Timeline |
| NCC AB |
| JM AB |
NCC AB and JM AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NCC AB and JM AB
The main advantage of trading using opposite NCC AB and JM AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NCC AB position performs unexpectedly, JM AB can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in JM AB will offset losses from the drop in JM AB's long position.The idea behind NCC AB and JM AB pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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